Egg weighs into rivals over interest charges

Only a tiny percentage of people who apply for credit cards and loans obtain the rates advertised, according to Egg, which this week launched an extraordinary attack on its rivals.

Mystery shopper research from Egg shows that only 10% of consumers were offered the lowest advertised rate by four firms using variable "risk-based" ratings. And 70% were unaware interest levels would depend on their financial circumstances.

Egg believes few realise that a growing number of credit providers use "risk-based" interest rate assessments. These offer a low rate pre-fixed by "from" or "as low as". These go to customers with top credit scores.

Lenders must also show the "typical rate" - the level more than 50% of successful applicants pay. But banks don't have to show the highest rate customers can pay - some do but others refuse.

Egg sent 50 people chosen by researchers NOP to each of four leading credit institutions - 200 mystery shopping trips in all.

It found just 4% of the Abbey National sample were offered 6.6% - the lowest rate on its internet loan. And some had to pay 13.8% - twice the "typical" 6.9%.

Capital One's No-Hassle Platinum advertises 11.5% both as its lowest and typical rate. But only one in three applicants received this - and some were quoted a massive 29.9%. The average rate here was 14.8%.

Barclaycard also uses risk-based pricing. Its internet site adheres to the rules by showing 11.9% as the lowest rate and 17.9% - in bold type - as the typical rate. Just 4% ended up with 11.9% - 70% were quoted 17.9% and one in ten customers were told to pay 24.9%.

But the researchers came unstuck with Lombard. Egg says the lowest rate is 6.9% although that is internet only.

"The mystery shopping was by phone," Lombard says. "And our lowest rate is 7.9% which most of the mystery shoppers were offered."

But Lombard refuses to say what its highest rate could be although the Egg figures show at least one applicant was asked to pay 23.9%. Lombard says less than 5% pay at this level.

Egg boss Mark Nancarrow asks how many people would buy clothes or hi-fi with a tag saying "price agreed after purchase"?

"What you see isn't what you get with risk-rating," says Mike Naylor at the Consumers Association (CA). "You're shopping blind as you don't know what you will be offered until you are offered it. You are forced to shop around but the system makes it difficult and each application you make to discover what you could get can impact your credit score."

The CA is not against risk-based rates - it can offer better deals to those with good credit records. "But we want transparency including the range of rates. And we think this range should go into best buy tables - it is easy to come out on top because of a low rate hardly anyone can get," says Naylor.

Moneyfacts, which supplies figures to our best buy pages, says it aims to show typical rates. Barclaycard shows all five rates in its publication.

But some lenders use "blended rates" - a mix of 0% for a number of months plus the "go-to" rate for the rest of the year. This cuts the real rate people have to pay.

Barclaycard says that with Egg you are either accepted or rejected, but with risk-rating, most people get something. "Which is worse: getting nothing or paying a bit more?" it asks.



Nasty shock in store for Tesco customer

Every little counts, as Tesco says. And when Francis McLennan, 55, was sent a Tesco credit card mailshot last October with a 0% balance transfer, he applied, writes Tony Levene.

Six months later, he still had no card, despite the fact that he is a director of a charity, earns well above the average and had been given cards by both Citibank and MBNA.

"A balance transfer would save £45 a month plus extra loyalty points. But I was turned down, which gave me a bad credit mark," he says. He asked Tesco why.

"Tesco told me to try Experian. My file was a mess. Experian had created a second 'me' by misspelling my name and there was a mix-up over the address and the postcode had changed." Then Tesco said the "adverse information" leading to the refusal was a county court judgment.

"I checked. There was no CCJ. I have no debt problems," he says. "Finally, I discovered the CCJ was a case where, in my professional capacity, I asked a court to seek a ruling on a financial dispute with another charity. The judge halved the sum the other side claimed," he says.

And earlier this week, when our photographer tried to take his picture outside his local store, he faced distressing threats from a security guard.

Tesco now admits it treated Mr McLennan with a service level "that was not acceptable".

Tesco says: "This application went to the appeals section where there were delays. This has fallen short of our normal standards. We failed to distinguish the nature of the CCJ. We shall send a card with six months 0% on his balance - plus £50 as a goodwill gesture."